A plan to keep We Energies' power plant in upper Michigan from shutting down is up in the air after the utility lost its largest customer, the operator of two iron ore mines.

We Energies said in a filing with securities regulators it has asked the operator of the Midwest wholesale power market to suspend operation of its Marquette, Mich., power plant beginning in February, unless the grid operator decides the power plant is needed to keep the lights on in the Upper Peninsula.

The request could result in a commitment from the Midcontinent Independent System Operator that it will pay We Energies to keep the plant running, the utility said.

The Milwaukee utility it is looking to align its power supply to a shrinking demand in Michigan after two large iron ore mines and other customers switched to alternative power suppliers under Michigan’s electricity choice program, utility spokesman Brian Manthey said.

Electricity choice is a form of partial utility deregulation that has taken place in a variety of states including Michigan and Illinois.

We Energies lost more than 85% of its total energy demand in Michigan when the mines and other customers left. Upset over four rate hikes in five years, the mines began buying power from De Pere-based Integrys Energy Services Inc. this month.

As a result of the mines’ decision, We Energies is re-thinking its joint venture with Wolverine Power Cooperative that was formed to keep the plant running, with Wolverine planning to invest $130 million to $140 million to install scrubbers to reduce air pollution.

“We’ve talked with them and we are continuing discussons to determine what changes need to be made to the joint venture, in order to move forward with it,” Manthey said. “Unless some changes can be made in the agreement, the situation could lead to the full or partial death of the plant.”

We Energies is proposing to suspend operations at the plant, beginning in February and continuing through May 2015. A MISO representative said the organization can't comment because requests to suspend operations are confidential, until the point that the organization determines a plant must keep running for reliability reasons.

But MISO has already gone on record regarding the need for the U.P. power plant, the only large around-the-clock power plant in the Upper Peninsula, to keep running.

In a letter to We Energies last year, MISO said retiring Presque Isle before the Upper Peninsula transmission line network is upgraded would “would result in violation of applicable reliability standards, creating unacceptable reliability issues.”

Citing reliability concerns in the U.P., MISO is already paying the city of Escanaba regular payments to keep its coal-fired power plant — about one-tenth the size of the We Energies plant — running.

If MISO decides that the plant is needed for reliability reasons, We Energies would be paid by MISO to operate the plant, Manthey said.

As a result, if that happened, customers across the MISO region — much of the central United States – could end up footing the bill.

Cliffs Resources Inc., operator of the Tilden and Empire mines, opted to switch to a competitive electricity supplier because Integrys offered less expensive rates than We Energies. Cliffs said its electricity costs have soared in recent years, and opted to sign on with Integrys instead.

Integrys said it would procure power from the wholesale power market to supply electricity to the mines.

We Energies has about 28,000 customers in the Upper Peninsula, out of a total customer base of 1.1 million customers in Wisconsin and Michigan.

Renewed concern about shutting down the Marquette power plant, known as Presque Isle Power Plant, comes just months after MISO completed a study of dozens of potential transmission line projects that are on the drawing board for upper Michigan, at a cost of $285 million to $894 million.

The studies that the grid operator and planner conducted were all based on Presque Isle continuing to run.

The transmission study found that none of the alternatives MISO studied were cost-effective for customers, said Charlie Higley, executive director of the Wisconsin Citizens' Utility Board.

As a result, he said, "The best outcome would be for someone else to buy out We Energies’ share in Presque Isle, because that way Wisconsin ratepayers would not longer be on the hoook for expenses for the plant."

If Presque Isle is shut down, a far less expensive option would be to build a new power plant, Higley said.

The utility sought fast-track approval for those projects from MISO, but customer groups including the Citizens' Utility Board and Chicago-based Environmental Law and Policy Center weighed in urging a more deliberate process.

Among the concerns was how much Wisconsin customers should pay for projects that would largely benefit Michiganders.

ATC then scaled back its proposals for northern Wisconsin and the U.P., known as the Bay Lake project. That project is now pegged to cost $273 million to $409 million. ATC plans to seek approval from Michigan regulators for the line this fall and from Wisconsin regulators next year, said transmission company spokeswoman Luella Dooley-Menet.

ATC is owned by multiple utilities, including both We Energies and Green Bay-based Wisconsin Public Service Corp., a sister company of Integrys Energy Services.

Should Presque Isle close for good, Dooley-Menet said, "we would need to look at additional options to reinforce the transmission system Michigan’s Upper Peninsula since the plant is needed for reliability reasons."

About Thomas Content

Thomas Content covers energy, clean technology and sustainable business. A series he co-wrote on energy and climate change won top honors in 2008 from the National Press Foundation.